The COVID-19 pandemic is currently ravaging the world, and the United States has been largely unsuccessful at containing the coronavirus. One long-standing policy failure stands out as having exacerbated the pandemic in our country: the lack of a national mandate of paid sick leaves, without which workers face financial and workplace-cultural pressures to attend work while sick, thus spreading the virus to their fellow employees and the public at large. This Article provides the blueprint for a national, subsidized mandate of paid sick leaves and two additional insights about our tax institutions as mechanisms of effectuating broader societal goals. It first justifies a paid-sick-leave mandate on the grounds of market failures (both cognitive biases and externalities) and workplace equality. It also argues for the need of subsidies in order to protect lower-income workers from unemployment risks imposed by a national mandate. Second, the Article critically assesses the current federal legislative approach utilized in the Families First Coronavirus Response Act (FFCRA). The Article then proposes designing a national employer mandate of paid sick leaves funded by general-revenue business tax credits and providing partial wage replacement. This Article’s discussion of paid sick leaves yields two insights about our tax institutions. First, it questions the role of payroll taxes, which are highly regressive, impose burdens almost exclusively on labor, and are normatively unjustified when the spending funded by payroll taxes benefits the broader non-wage-earning public. Second, the Article reveals the malleability of tax institutions with respect to funding, administrability, and costs. These comparative advantages of tax institutions make them perennially popular in times of crisis.
{"title":"Pandemics, Paid Sick Leaves, and Tax Institutions","authors":"Alex M. R. Zhang","doi":"10.2139/ssrn.3729500","DOIUrl":"https://doi.org/10.2139/ssrn.3729500","url":null,"abstract":"The COVID-19 pandemic is currently ravaging the world, and the United States has been largely unsuccessful at containing the coronavirus. One long-standing policy failure stands out as having exacerbated the pandemic in our country: the lack of a national mandate of paid sick leaves, without which workers face financial and workplace-cultural pressures to attend work while sick, thus spreading the virus to their fellow employees and the public at large. \u0000 \u0000This Article provides the blueprint for a national, subsidized mandate of paid sick leaves and two additional insights about our tax institutions as mechanisms of effectuating broader societal goals. It first justifies a paid-sick-leave mandate on the grounds of market failures (both cognitive biases and externalities) and workplace equality. It also argues for the need of subsidies in order to protect lower-income workers from unemployment risks imposed by a national mandate. Second, the Article critically assesses the current federal legislative approach utilized in the Families First Coronavirus Response Act (FFCRA). The Article then proposes designing a national employer mandate of paid sick leaves funded by general-revenue business tax credits and providing partial wage replacement. \u0000 \u0000This Article’s discussion of paid sick leaves yields two insights about our tax institutions. First, it questions the role of payroll taxes, which are highly regressive, impose burdens almost exclusively on labor, and are normatively unjustified when the spending funded by payroll taxes benefits the broader non-wage-earning public. Second, the Article reveals the malleability of tax institutions with respect to funding, administrability, and costs. These comparative advantages of tax institutions make them perennially popular in times of crisis.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2020-07-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83151084","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Dutch abstract: Ph.d.-afhandling afvist af ph.d.-udvalg (tre medlemmer) nedsat af Københavns Universitet (ph.d.-bekendtgørelsens § 15, stk. 2).
English abstract: Dismissed PhD Thesis by the PhD review committee set by the University of Copenhagen (three members).
{"title":"Lovhjemmel, Hjemmel, Lighed OG Samvirke Mellem Retsgrundlag Inden for Dansk Skatte-, Moms- OG Afgiftsret (Statutory Authority, Legal Authority, Equality and Coherence Between Different Set of Rules or Legal Basis’ Within Danish Tax and Excise Law)","authors":"Rasmus Smith Nielsen","doi":"10.2139/ssrn.3652207","DOIUrl":"https://doi.org/10.2139/ssrn.3652207","url":null,"abstract":"<b>Dutch abstract:</b> Ph.d.-afhandling afvist af ph.d.-udvalg (tre medlemmer) nedsat af Københavns Universitet (ph.d.-bekendtgørelsens § 15, stk. 2). <br><br><b>English abstract:</b> Dismissed PhD Thesis by the PhD review committee set by the University of Copenhagen (three members).","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2020-07-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83762088","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2020-07-01DOI: 10.32721/ctj.2020.68.2.hosanna
Derrick Hosanna, E. Hennessey
The traditional objective of a costs award in general civil litigation was to indemnify the successful party for the legal and other costs incurred to defend an unproven claim or pursue a valid legal right. However, Canadian courts have recognized that the traditional view of costs is outdated and that an additional and more important use of costs awards is promotion of the efficient and orderly administration of justice.
Costs awards at the Tax Court of Canada have generally followed a similar path of development, but at a slower pace. Historically, costs were awarded only in accordance with the tariff annexed to the Tax Court of Canada Rules (General Procedure) unless "reprehensible, scandalous, or outrageous conduct" was present. More recently, however, Tax Court judges have expressed concerns about the inadequacy of the tariff. These concerns have led the court to adopt a "principled" approach to costs, similar to that used in modern general civil litigation, by applying specific factors set out in rule 147(3) ("the 147(3) factors") rather than relying solely on the tariff.
This article reviews the recent jurisprudence relating to costs awards at the Tax Court, with a particular focus on the manner in which the 147(3) factors have been interpreted and how the application of those factors could evolve to further promote the new objectives of costs awards recognized in general civil litigation. The authors argue that costs awards by the Tax Court could be used more effectively to promote the efficient and orderly administration of justice by:
(1) taking into consideration the unique features of a tax dispute, and
(2) placing additional emphasis on the purposes of costs awards adopted in general civil litigation.
{"title":"The Death of the Tariff: A Review of the Tax Court's Discretionary Approach to Costs Awards","authors":"Derrick Hosanna, E. Hennessey","doi":"10.32721/ctj.2020.68.2.hosanna","DOIUrl":"https://doi.org/10.32721/ctj.2020.68.2.hosanna","url":null,"abstract":"The traditional objective of a costs award in general civil litigation was to indemnify the successful party for the legal and other costs incurred to defend an unproven claim or pursue a valid legal right. However, Canadian courts have recognized that the traditional view of costs is outdated and that an additional and more important use of costs awards is promotion of the efficient and orderly administration of justice.<br><br>Costs awards at the Tax Court of Canada have generally followed a similar path of development, but at a slower pace. Historically, costs were awarded only in accordance with the tariff annexed to the Tax Court of Canada Rules (General Procedure) unless \"reprehensible, scandalous, or outrageous conduct\" was present. More recently, however, Tax Court judges have expressed concerns about the inadequacy of the tariff. These concerns have led the court to adopt a \"principled\" approach to costs, similar to that used in modern general civil litigation, by applying specific factors set out in rule 147(3) (\"the 147(3) factors\") rather than relying solely on the tariff.<br><br>This article reviews the recent jurisprudence relating to costs awards at the Tax Court, with a particular focus on the manner in which the 147(3) factors have been interpreted and how the application of those factors could evolve to further promote the new objectives of costs awards recognized in general civil litigation. The authors argue that costs awards by the Tax Court could be used more effectively to promote the efficient and orderly administration of justice by: <br><br>(1) taking into consideration the unique features of a tax dispute, and <br><br>(2) placing additional emphasis on the purposes of costs awards adopted in general civil litigation.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2020-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73564813","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The main motivation behind the creation of cryptocurrencies was to devise a way to take money out of the hands of the government. It only started to do so after 2009, with the creation of Bitcoin, which purported to be an alternative to money. Cryptocurrencies today are getting closer to fulfilling the economic functions of money, but have not yet reached that point. Nonetheless, international courts have started to recognise them as, at the very least, functional equivalents to money, especially when applying anti money laundering rules to frauds committed using cryptocurrencies. On the other hand, policy-makers refuse to recognise cryptocurrencies as money, as it the case of the taxation rules of the UK which recognise them as property, subject to cumbersome Capital Gains Tax calculations and reporting obligations upon disposal. This is not the only possible approach, with other jurisdictions taking more lenient approaches. The fact that the taxation of cryptocurrencies is not a coherent issue from an international standpoint can have negative consequences, such as jurisdiction arbitrage by users, and even some cryptoassets becoming the object of hybrid mismatches agreements such as those that are part of the BEPS project of the OECD. A solution to this issue would include taking care to properly characterise all cryptoassets so that their regulation is homogeneous at an international level, and making sure the actual tax regulation they are subject to respects, or at least considers, the objectives behind their creation. The use of deeming provisions is proposed to achieve the latter end.
{"title":"Bridging the Map and the Territory: International Taxation Issues in Relation to Cryptocurrencies","authors":"D. Boada","doi":"10.2139/ssrn.3627503","DOIUrl":"https://doi.org/10.2139/ssrn.3627503","url":null,"abstract":"The main motivation behind the creation of cryptocurrencies was to devise a way to take money out of the hands of the government. It only started to do so after 2009, with the creation of Bitcoin, which purported to be an alternative to money. Cryptocurrencies today are getting closer to fulfilling the economic functions of money, but have not yet reached that point. Nonetheless, international courts have started to recognise them as, at the very least, functional equivalents to money, especially when applying anti money laundering rules to frauds committed using cryptocurrencies. On the other hand, policy-makers refuse to recognise cryptocurrencies as money, as it the case of the taxation rules of the UK which recognise them as property, subject to cumbersome Capital Gains Tax calculations and reporting obligations upon disposal. This is not the only possible approach, with other jurisdictions taking more lenient approaches. The fact that the taxation of cryptocurrencies is not a coherent issue from an international standpoint can have negative consequences, such as jurisdiction arbitrage by users, and even some cryptoassets becoming the object of hybrid mismatches agreements such as those that are part of the BEPS project of the OECD. A solution to this issue would include taking care to properly characterise all cryptoassets so that their regulation is homogeneous at an international level, and making sure the actual tax regulation they are subject to respects, or at least considers, the objectives behind their creation. The use of deeming provisions is proposed to achieve the latter end.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2020-06-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"91139557","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The OECD’s Global Anti-Tax Erosion (GloBE) proposal develops rules providing that countries can tax income where other countries do not exercise their primary taxing rights over that income. What can affected countries with primary taxing rights do in response? One option is to let other countries receive the taxes they choose not to collect. This means that they will suffer the economic harms of taxation without receiving the tax revenues. Another option is to increase their taxes so the primary taxing rights will be ‘fully’ exercised. However, this option might not be desirable or feasible for various reasons, including the broader implications for domestic taxpayers. This Article proposes a third option: introducing a new defensive tax which would apply where income subject to the relevant country’s primary taxing rights would be taxed in another country in the absence of this defensive tax. The result would be that the country with the primary taxing rights would collect the tax revenues. This tax would not materially affect the multinational enterprise’s overall tax liability and incentives or create much additional complexity. This tax is fair at the international level as it allocates the tax revenues to the country with the primary taxing rights. Countries that may be adversely affected by the recent international tax developments should consider adopting this tax to defend their primary taxing rights.
{"title":"Defense of Primary Taxing Rights","authors":"Noam Noked","doi":"10.2139/ssrn.3646646","DOIUrl":"https://doi.org/10.2139/ssrn.3646646","url":null,"abstract":"The OECD’s Global Anti-Tax Erosion (GloBE) proposal develops rules providing that countries can tax income where other countries do not exercise their primary taxing rights over that income. What can affected countries with primary taxing rights do in response? One option is to let other countries receive the taxes they choose not to collect. This means that they will suffer the economic harms of taxation without receiving the tax revenues. Another option is to increase their taxes so the primary taxing rights will be ‘fully’ exercised. However, this option might not be desirable or feasible for various reasons, including the broader implications for domestic taxpayers. \u0000 \u0000This Article proposes a third option: introducing a new defensive tax which would apply where income subject to the relevant country’s primary taxing rights would be taxed in another country in the absence of this defensive tax. The result would be that the country with the primary taxing rights would collect the tax revenues. This tax would not materially affect the multinational enterprise’s overall tax liability and incentives or create much additional complexity. This tax is fair at the international level as it allocates the tax revenues to the country with the primary taxing rights. Countries that may be adversely affected by the recent international tax developments should consider adopting this tax to defend their primary taxing rights.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2020-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79721471","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Congress, by the Tax Cuts and Jobs Act of 2017 (hereinafter “TCJA”),1 made a number of changes to the income tax rates applicable to individuals and profits of businesses conducted both in corporate and non-corporate form. Elsewhere, in an article entitled Advancing to Corporate Tax Integration: A Laissez-Faire Approach, I advanced the case for an Integrationist Norm of business income taxation.2 In the tax regime of the Integrationist Norm, all business profits would be subject to exactly the same tax burden as if a business were conducted directly by the individual equity holders without an intervening legal fiction of a juridical business entity. The purpose of this Article is to assess how near TCJA brings the Internal Revenue Code (hereinafter the “Code”) to achieving the Integrationist Norm, and to consider what possible modifications to TCJA might bring it nearer the target, and whether achieve sufficiently more good than harm to justify the effort to have them enacted.
{"title":"Corporate Tax Integration and TCJA: How Near the Mark?","authors":"Anthony P. Polito","doi":"10.2139/ssrn.3612351","DOIUrl":"https://doi.org/10.2139/ssrn.3612351","url":null,"abstract":"Congress, by the Tax Cuts and Jobs Act of 2017 (hereinafter “TCJA”),1 made a number of changes to the income tax rates applicable to individuals and profits of businesses conducted both in corporate and non-corporate form. Elsewhere, in an article entitled Advancing to Corporate Tax Integration: A Laissez-Faire Approach, I advanced the case for an Integrationist Norm of business income taxation.2 In the tax regime of the Integrationist Norm, all business profits would be subject to exactly the same tax burden as if a business were conducted directly by the individual equity holders without an intervening legal fiction of a juridical business entity. The purpose of this Article is to assess how near TCJA brings the Internal Revenue Code (hereinafter the “Code”) to achieving the Integrationist Norm, and to consider what possible modifications to TCJA might bring it nearer the target, and whether achieve sufficiently more good than harm to justify the effort to have them enacted.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2020-05-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78049209","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Over the past two decades, numerous experts and politicians have proposed “revenue-neutral carbon tax shifts,” under which a government implements a carbon tax and uses the resulting revenue to cut other taxes by an equal dollar amount. These proposals commonly include legal or political mechanisms to bind governments to revenue neutrality over time. This Article’s central claim is that revenue neutrality suffers from conceptual and epistemic confusion that should lead to reconsideration of the policy merits of carbon tax shifts. To illustrate the argument, the Article provides the first retrospective review in the legal literature of carbon tax shifts from four jurisdictions, two of which were implemented and then repealed, and two of which were rejected by voters at the ballot box. In each jurisdiction, the carbon tax shift was afflicted by confusion between two substantially different conceptions of revenue neutrality, which can be termed “backward-looking” and “sideways-looking” revenue neutrality. This confusion is difficult to resolve because the choice between the two conceptions presents governments with a dilemma: backward-looking revenue neutrality is normatively undesirable, while sideways-looking revenue neutrality is difficult to enforce through legal and political mechanisms. This Article argues that the dilemma should be taken into account when choosing between carbon tax shifts and alternative uses of carbon pricing revenues. The dilemma also has implications for revenue-neutral tax reform in other contexts: it is far harder to separate the question of “how to tax” from the question of “how much to tax” than is commonly understood.
{"title":"Carbon Tax Shifts and the Revenue-Neutrality Dilemma","authors":"R. Gillis","doi":"10.5744/ftr.2020.1005","DOIUrl":"https://doi.org/10.5744/ftr.2020.1005","url":null,"abstract":"Over the past two decades, numerous experts and politicians have proposed “revenue-neutral carbon tax shifts,” under which a government implements a carbon tax and uses the resulting revenue to cut other taxes by an equal dollar amount. These proposals commonly include legal or political mechanisms to bind governments to revenue neutrality over time. This Article’s central claim is that revenue neutrality suffers from conceptual and epistemic confusion that should lead to reconsideration of the policy merits of carbon tax shifts. To illustrate the argument, the Article provides the first retrospective review in the legal literature of carbon tax shifts from four jurisdictions, two of which were implemented and then repealed, and two of which were rejected by voters at the ballot box. In each jurisdiction, the carbon tax shift was afflicted by confusion between two substantially different conceptions of revenue neutrality, which can be termed “backward-looking” and “sideways-looking” revenue neutrality. This confusion is difficult to resolve because the choice between the two conceptions presents governments with a dilemma: backward-looking revenue neutrality is normatively undesirable, while sideways-looking revenue neutrality is difficult to enforce through legal and political mechanisms. This Article argues that the dilemma should be taken into account when choosing between carbon tax shifts and alternative uses of carbon pricing revenues. The dilemma also has implications for revenue-neutral tax reform in other contexts: it is far harder to separate the question of “how to tax” from the question of “how much to tax” than is commonly understood.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2020-04-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79764384","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Andrew Belnap, Jeffrey L. Hoopes, Edward L. Maydew, Alex Turk
Tax audits are a necessary component of the tax system but have potentially adverse real effects on firms selected for audit. This paper examines the real effects on small firms of being subjected to a tax audit, using administrative data from both random and nonrandom tax audits. We find that audited firms are less likely to continue as going concerns following the audit. However, we find that the effect is almost entirely isolated to firms that underreported their tax liability. We find little evidence that the administrative costs of an audit are associated with ceasing to operate. Among audited firms that continue as going concerns, we find evidence of adverse real effects on future revenues but no evidence of effects on wages, employment, or investment. Finally, we consider whether tax audits could also have side-benefits and find that in certain cases tax audits help firms learn and make important changes.
{"title":"Real Effects of Tax Audits: Evidence from Firms Randomly Selected for IRS Examination","authors":"Andrew Belnap, Jeffrey L. Hoopes, Edward L. Maydew, Alex Turk","doi":"10.2139/ssrn.3437137","DOIUrl":"https://doi.org/10.2139/ssrn.3437137","url":null,"abstract":"Tax audits are a necessary component of the tax system but have potentially adverse real effects on firms selected for audit. This paper examines the real effects on small firms of being subjected to a tax audit, using administrative data from both random and nonrandom tax audits. We find that audited firms are less likely to continue as going concerns following the audit. However, we find that the effect is almost entirely isolated to firms that underreported their tax liability. We find little evidence that the administrative costs of an audit are associated with ceasing to operate. Among audited firms that continue as going concerns, we find evidence of adverse real effects on future revenues but no evidence of effects on wages, employment, or investment. Finally, we consider whether tax audits could also have side-benefits and find that in certain cases tax audits help firms learn and make important changes.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2020-03-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73027500","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Society suffers efficiency costs when tax and economics are mismatched. This principle is illustrated by the tax neutrality doctrines that are the cornerstone of the U.S. international tax system and by the BEPS’s efforts to combat arbitrary income shifting. While society has an interest in maximizing pre-tax income from all economic activities, self-interested taxpayers seek only to maximize their after-tax income. A sound, non-arbitrary tax policy must thus incentivize taxpayers to maximize both their pre-tax and after-tax income. This Note provides a novel efficiency analysis of the rules under Subchapter K and reveals the efficiency costs that arise when arbitrary tax liabilities sever the positive connection between pre-tax and after-tax income. It applies the insight gained from the efficiency analysis to the Treasury’s various flawed efforts under Subchapter K to match tax with economics, including the Substantial Economic Effect (SEE) safe harbor and doctrines under section 704(c). The Article then explores alternatives to the Treasury’s “one-size-fits-all” solution, focusing on a detailed analysis of the economic effect equivalence (EEE) test and so-called target allocations. After revealing the tension between target allocations and some of the fundamental principles of section 704 regulations, the Article presents a solution to the long-debated capital shift problem inherent in target allocations.
{"title":"A Gain Must Lie Where It Falls: Matching Tax with Economics in Subchapter K","authors":"Zhiyuan Zuo","doi":"10.2139/ssrn.3469932","DOIUrl":"https://doi.org/10.2139/ssrn.3469932","url":null,"abstract":"Society suffers efficiency costs when tax and economics are mismatched. This principle is illustrated by the tax neutrality doctrines that are the cornerstone of the U.S. international tax system and by the BEPS’s efforts to combat arbitrary income shifting. While society has an interest in maximizing pre-tax income from all economic activities, self-interested taxpayers seek only to maximize their after-tax income. A sound, non-arbitrary tax policy must thus incentivize taxpayers to maximize both their pre-tax and after-tax income. This Note provides a novel efficiency analysis of the rules under Subchapter K and reveals the efficiency costs that arise when arbitrary tax liabilities sever the positive connection between pre-tax and after-tax income. It applies the insight gained from the efficiency analysis to the Treasury’s various flawed efforts under Subchapter K to match tax with economics, including the Substantial Economic Effect (SEE) safe harbor and doctrines under section 704(c). The Article then explores alternatives to the Treasury’s “one-size-fits-all” solution, focusing on a detailed analysis of the economic effect equivalence (EEE) test and so-called target allocations. After revealing the tension between target allocations and some of the fundamental principles of section 704 regulations, the Article presents a solution to the long-debated capital shift problem inherent in target allocations.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2020-03-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"80919618","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Intellectual property (IP) box regimes reward ownership of successful technology by imposing a lower tax rate on income derived from the commercialization of IP relative to other sources of business income. Coupled with explicit provisions regarding the eligibility of acquired IP, IP boxes may affect merger and acquisition (M&A) incentives through multiple channels. Applying panel difference-in-differences, triple-differencing, and event study methods, we examine the effects of these modified incentives on the volume of M&A transactions and the probability that a firm is acquired in the context of international and domestic deals. In regimes with strict nexus requirements, reducing the tax rate on patent income is associated with reductions in the number of deals and the probability of being acquired for patent-owning firms due to the potential loss of eligibility for preferential taxation. However, this effect dissipates where nexus requirements are relaxed, and significant positive effects of IP box tax savings on M&A activity in the more permissive regimes are indicative of increased after-tax valuations of merger-driven synergies.
{"title":"The Impact of IP Box Regimes on the M&A Market","authors":"Sebastien Bradley, Leslie A. Robinson, M. Ruf","doi":"10.2139/ssrn.3304559","DOIUrl":"https://doi.org/10.2139/ssrn.3304559","url":null,"abstract":"Intellectual property (IP) box regimes reward ownership of successful technology by imposing a lower tax rate on income derived from the commercialization of IP relative to other sources of business income. Coupled with explicit provisions regarding the eligibility of acquired IP, IP boxes may affect merger and acquisition (M&A) incentives through multiple channels. Applying panel difference-in-differences, triple-differencing, and event study methods, we examine the effects of these modified incentives on the volume of M&A transactions and the probability that a firm is acquired in the context of international and domestic deals. In regimes with strict nexus requirements, reducing the tax rate on patent income is associated with reductions in the number of deals and the probability of being acquired for patent-owning firms due to the potential loss of eligibility for preferential taxation. However, this effect dissipates where nexus requirements are relaxed, and significant positive effects of IP box tax savings on M&A activity in the more permissive regimes are indicative of increased after-tax valuations of merger-driven \u0000synergies.","PeriodicalId":54058,"journal":{"name":"EJournal of Tax Research","volume":null,"pages":null},"PeriodicalIF":0.3,"publicationDate":"2020-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86378940","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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